US economic data in focus on Monday

Today’s US opening call provides an update on:

  • Lower trading volumes continue this week;
  • US pending home sales the highlight of today;
  • Manufacturing data also eyed;
  • No reason to doubt that the January effect will continue to guide markets higher..

It’s been a very quiet start to the week so far, which is hardly surprising given the time of year.

As we tend to see around this time, trading volumes have been very low and this is likely to continue into year end, with many traders extending their holidays a couple of extra days. This isn’t helped by the lack of catalysts in the markets around this time of year, with the economic calendar looking very light and corporate earnings season not starting for a couple more weeks.

There is a couple of pieces of data being released in the US on Monday, although both are unlikely to have much of an impact on the markets. The first is the pending home sales figure for November, which is expected to show a 1% month on month increase.

This would be very positive for the US as it would bring an end to the five consecutive months of falling sales, which came following the rise in mortgage rates in the middle of this year. That said, this may only be a slight blip in the data with rates expected to rise further next year as the Fed brings an and to its quantitative easing program. It will be interesting to see how home buyers respond to these changes in rates, with some potentially being deterred, while others may try and get in early before they rise further.

The other notable release will be the Dallas Fed manufacturing business index, which has fallen quite significantly in the last months. The manufacturing sector is expected to be one of the better performing in 2014, as consumer spending picks up with the improving economy and the global recovery gathers momentum. This could begin to be reflected as early as the December figure, which is released shortly after the opening bell.

Aside from this things will be very quiet. That said, this didn’t stop indices hitting record highs on numerous occasions last week, with the S&P and Down doing this on numerous occasions. I see no reason why this won’t continue today as the Santa rally continues into the final couple of trading sessions of the year.

January has historically been a good year for the markets, particularly in the last couple of years, which is what many see as the main reason for the Santa rally. It will be interesting to see if we’ll see the same in 2014 in the face of Fed tapering. I imagine this will bring added importance to corporate earnings which have been somewhat overlooked thanks to the Fed’s loose monetary policy. The last week in the markets has left little reason to doubt that the January effect will arrive in the markets in full force.

Ahead of the open we expect to see the S&P up 2 points, Dow up 16 points and the NASDAQ flat.

About Craig Erlam

Craig Erlam is Market Analyst at Alpari UK. He joined Alpari (UK) at the beginning of 2012 after four years in the financial services industry, including working at Goldman Sachs. Craig writes market commentary that regularly appears on websites including The Financial Times, Reuters, BBC, The Telegraph and FOX Business. He also provides insight and analysis for clients which he posts daily on Twitter and the Alpari (UK) website. You can also find Craig on YouTube where he gives short market updates, including charting analysis.

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